DaVita Inc.
(Logo: http://www.newscom.com/cgi-bin/prnh/20020729/DAVITALOGO)
Net income for the three months ended September 30, 2007 was $89.3 million, or $0.83 per share excluding after-tax gains from insurance settlements and after-tax gains on the sale of investment securities, and was $94.5 million, or $0.88 per share including these items.
Net income for the nine months ended September 30, 2007 was $254.6 million, or $2.38 per share excluding after-tax gains from insurance settlements, after-tax gains on the sale of investment securities and the valuation gain on the Company's alliance and product supply agreement with Gambro Renal Products, and was $296.1 million, or $2.76 per share including these items.
Financial and operating highlights include:
-- Cash Flow: For the rolling 12 months ended September 30, 2008 operating cash flow was $595 million and free cash flow was $491 million. For the three months ended September 30, 2008 operating cash flow was $146 million and free cash flow was $119 million.
-- Operating Income: Operating income for the three and nine months ended September 30, 2008 was $208 million and $610 million, respectively. Operating income for the three months ended September 30, 2007 was $206 million, excluding pre-tax gains from insurance settlements of $6.8 million. Operating income for the nine months ended September 30, 2007 was $605 million, excluding pre-tax gains from insurance settlements and the pre-tax valuation gain on the Company's product supply agreement with Gambro Renal Products of $55 million.
-- Volume: Total treatments for the third quarter of 2008 were 4,091,099, or 51,786 treatments per day, representing a per day increase of 5.1% over the third quarter of 2007. Non-acquired treatment growth in the quarter was 3.8% over the prior year's third quarter.
-- Effective Tax Rate: The effective tax rate was 39.8% and 38.9% for the three and nine months ended September 30, 2008, respectively. We are still projecting our 2008 annual effective tax rate to be in the range of 38.5%- 39.5%, and are still projecting our 2009 effective tax rate to return to around 40.0%.
-- Share Repurchases: During the first nine months of 2008, we repurchased a total of 3,461,353 shares of our common stock for $169.7 million, or an average price of $49.02 per share, pursuant to previously announced Board authorizations. We did not repurchase any shares of our common stock during the third quarter of 2008. However, during October 2008, we repurchased 1,027,502 shares of our common stock for $50 million, or an average price of $48.66 per share.
-- Center Activity: As of September 30, 2008, we operated or provided administrative services at 1,425 outpatient dialysis centers serving approximately 111,000 patients, of which 1,402 centers are consolidated in our financial statements. During the third quarter of 2008, we acquired 6 centers, opened 22 new centers, merged 2 centers, closed 1 center, and divested 1 center.
Outlook
We expect our operating income results for 2008 to be near the middle of the range of our previously provided guidance of $800-$840 million. We still expect to generate approximately $480 million to $530 million of operating cash flow in 2008. Our operating income guidance for 2009 remains unchanged at a range of $820-$880 million. These projections and the underlying assumptions involve significant risks and uncertainties, including those described below and actual results may vary significantly from these current projections.
DaVita will be holding a conference call to discuss its results for the third quarter ended September 30, 2008 on November 3, 2008 at 12:00 p.m. Eastern Time. The dial in number is (800) 399-4406. A replay of the conference call will be available on DaVita's official web page, http://www.davita.com/, for the following 30 days.
This release contains forward-looking statements, including statements related to our 2008 and 2009 operating results and our 2009 expected effective tax rate. Factors which could impact future results include the uncertainties associated with governmental regulations, general economic and other market conditions, competition, accounting estimates and the risk factors set forth in the Company's SEC filings, including its Form 10-Q for the quarter ended June 30, 2008. The forward-looking statements should be considered in light of these risks and uncertainties.
These risks and uncertainties include those relating to: -- the concentration of profits generated from commercial payor plans,
-- continued downward pressure on average realized payment rates from commercial payors, which may result in the loss of revenue or patients,
-- a reduction in the number of patients under higher-paying commercial plans,
-- changes in government payment rates or the structure of payments under the Medicare ESRD Program may result in lower reimbursement for services we provide to Medicare patients and could have a material impact on our overall profitability,
-- changes in pharmaceutical or anemia management practice patterns, payment policies, or pharmaceutical pricing,
-- our ability to maintain contracts with physician medical directors,
-- legal compliance risks, including our continued compliance with complex government regulations and compliance with the corporate integrity agreement applicable to the dialysis centers acquired from Gambro Healthcare and assumed in connection with such acquisition, and
-- the resolution of ongoing investigations by various federal and state governmental agencies.
We undertake no obligation to update or revise any forward-looking statements, whether as a result of changes in underlying factors, new information, future events or otherwise.
This release contains non-GAAP financial measures. For reconciliations of these non-GAAP financial measures to their most comparable measure calculated and presented in accordance with GAAP, see the attached reconciliation schedules.
DAVITA INC.
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
(dollars in thousands, except per share data)
Three months ended Nine months ended
September 30, September 30,
2008 2007 2008 2007
Net operating revenues $1,447,135 $1,318,381 $4,199,163 $3,909,282
Operating expenses and
charges:
Patient care costs 1,005,648 890,243 2,909,143 2,662,841
General and
administrative 128,617 120,596 374,581 356,249
Depreciation and
amortization 54,970 49,230 160,673 142,078
Provision for
uncollectible accounts 37,305 34,107 109,433 101,686
Minority interests and
equity income, net 12,711 11,793 35,168 34,757
Valuation gain on
alliance and product
supply agreement - - - (55,275)
Total operating
expenses and
charges 1,239,251 1,105,969 3,588,998 3,242,336
Operating income 207,884 212,412 610,165 666,946
Debt expense (54,505) (62,715) (168,891) (194,496)
Other income 2,481 6,278 10,331 17,131
Income before income
taxes 155,860 155,975 451,605 489,581
Income tax expense 61,950 61,520 175,810 193,520
Net income $93,910 $94,455 $275,795 $296,061
Earnings per share:
Basic earnings per
share $0.90 $0.89 $2.61 $2.80
Diluted earnings per
share $0.89 $0.88 $2.59 $2.76
Weighted average shares
for earnings per share:
Basic 104,556,770 106,171,473 105,569,971 105,558,536
Diluted 105,577,823 107,561,139 106,421,184 107,129,135
DAVITA INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(dollars in thousands)
Nine months ended
September 30,
2008 2007
Cash flows from operating activities:
Net income $275,795 $296,061
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and amortization 160,673 142,078
Valuation gain on alliance and product supply
agreement - (55,275)
Stock-based compensation expense 29,975 25,260
Tax benefits from stock award exercises 10,174 27,000
Excess tax benefits from stock award exercises (5,054) (23,632)
Deferred income taxes 56,157 25,645
Minority interests in income of consolidated
subsidiaries 35,822 35,703
Distributions to minority interests (43,391) (35,216)
Equity investment income (654) (946)
Loss (gain) on disposal of assets 9,688 (4,944)
Non-cash debt and non-cash rent charges 9,971 11,810
Changes in operating assets and liabilities, other
than from acquisitions and divestitures:
Accounts receivable (130,022) (32,425)
Inventories (1,248) 15,144
Other receivables and other current assets (28,684) (42,818)
Other long-term assets (12,761) (11,921)
Accounts payable (12,800) (6,458)
Accrued compensation and benefits (11,752) (17,347)
Other current liabilities 29,838 (26,151)
Income taxes (3,129) (13,072)
Other long-term liabilities 3,163 1,214
Net cash provided by operating activities 371,761 309,710
Cash flows from investing activities:
Additions of property and equipment, net (223,851) (176,078)
Acquisitions and purchases of other
ownership interests (101,166) (81,782)
Proceeds from asset sales 451 4,643
Purchase of investments available for sale (1,695) (21,363)
Purchase of investments held-to-maturity (19,005) (20,839)
Proceeds from sale of investments available
for sale 5,323 32,138
Proceeds from maturities of investments
held-to-maturity 18,728 4,780
Contributions from minority owners 22,749 16,204
Purchase of intangible assets (65) (556)
Net cash used in investing activities (298,531) (242,853)
Cash flows from financing activities:
Borrowings 12,937,047 10,405,556
Payments on long-term debt (12,938,297) (10,451,891)
Deferred financing costs (130) (4,462)
Purchase of treasury stock (169,673) (6,350)
Excess tax benefits from stock award exercises 5,054 23,632
Stock award exercises and other share issuances,
net 33,670 47,756
Net cash (used in) provided by financing
activities (132,329) 14,241
Net (decrease) increase in cash and cash
equivalents (59,099) 81,098
Cash and cash equivalents at beginning of period 447,046 310,202
Cash and cash equivalents at end of period $387,947 $391,300
DAVITA INC.
CONSOLIDATED BALANCE SHEETS
(unaudited)
(dollars in thousands, except per share data)
September 30, December 31,
ASSETS 2008 2007
Cash and cash equivalents $387,947 $447,046
Short-term investments 51,614 40,278
Accounts receivable, less allowance of
$204,594 and $195,953 1,056,691 927,949
Inventories 82,494 80,173
Other receivables 230,073 198,744
Other current assets 36,010 34,482
Deferred income taxes 219,160 247,578
Total current assets 2,063,989 1,976,250
Property and equipment, net 1,011,702 939,326
Amortizable intangibles, net 165,270 183,042
Investments in third-party dialysis
businesses 19,239 19,446
Long-term investments 6,930 22,562
Other long-term assets 48,162 35,401
Goodwill 3,856,601 3,767,933
$7,171,893 $6,943,960
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable $212,661 $225,461
Other liabilities 515,989 486,151
Accrued compensation and benefits 330,838 334,961
Current portion of long-term debt 64,262 23,431
Income taxes payable - 16,492
Total current liabilities 1,123,750 1,086,496
Long-term debt 3,643,275 3,683,887
Other long-term liabilities 83,494 83,448
Alliance and product supply agreement, net 37,310 41,307
Deferred income taxes 214,477 166,055
Minority interests (fair value subject to
potential put obligations . $296,000 and
$330,000) 162,908 150,517
Commitments and contingencies
Shareholders' equity:
Preferred stock ($0.001 par value,
5,000,000 shares authorized; none issued)
Common stock ($0.001 par value,
450,000,000 shares authorized;
134,862,283 shares issued; 104,787,536
and 107,130,127 shares outstanding) 135 135
Additional paid-in capital 755,579 707,080
Retained earnings 1,791,085 1,515,290
Treasury stock, at cost
(30,074,747 and 27,732,156 shares) (635,274) (487,744)
Accumulated other comprehensive loss (4,846) (2,511)
Total shareholders' equity 1,906,679 1,732,250
7,171,893 6,943,960
DAVITA INC.
SUPPLEMENTAL FINANCIAL DATA
(unaudited)
(dollars in millions, except for per share and per treatment data)
Nine months
Three months ended ended
September 30, June 30, September 30, September 30,
2008 2008 2007 2008
Financial Results
excluding gains
from insurance
settlements and
gains on sale of
investment securities
for the three months
ended September 30,
2007:
Net income(1) $93.9 $95.0 $89.3 $275.8
Diluted earnings per
share(1) $0.89 $0.90 $0.83 $2.59
Operating income(1) $207.9 $205.6 $205.6 $610.2
Operating income
margin(1) 14.4% 14.6% 15.6% 14.5%
Business Metrics:
Volume
Treatments 4,091,099 4,018,763 3,842,763 12,044,639
Number of
treatment days 79.0 78.0 78.0 234.4
Treatments per
day 51,786 51,523 49,266 51,385
Per day year over
year increase 5.1% 6.0% 6.1% 5.8%
Non-acquired growth
year over year 3.8% 4.5% 5.2% 4.4%
Revenue
Total operating
revenue $1,447 $1,407 $1,318 $4,199
Dialysis and
related lab
services revenue
per treatment $336.42 $335.98 $333.57 $333.83
Per treatment
increase (decrease)
from previous
quarter 0.1% 2.1% (1.3%) -
Per treatment
increase (decrease)
from previous
year 0.9% (0.6%) 0.6% (0.8%)
Expenses
A. Patient care costs
Percent of revenue 69.5% 69.2% 67.5% 69.3%
Per treatment
(including gains
from insurance
settlements of
$1.76 for the
third quarter of
2007)(2) $245.81 $242.19 $231.67 $241.53
Per treatment
increase (decrease)
from previous
quarter 1.5% 2.4% (1.4%) -
Per treatment
increase (decrease)
from previous year 6.1% 3.1% (0.8%) 2.8%
B. General & administrative
expenses
Percent of revenue 8.9% 8.9% 9.1% 8.9%
Per treatment $31.44 $31.15 $31.38 $31.10
Per treatment
increase (decrease)
from previous
quarter 0.9% 1.5% (2.8%) -
Per treatment
increase (decrease)
from previous year 0.2% (3.5%) 1.5% (1.0%)
C. Bad debt expense as
a percent of
current-period
revenue 2.6% 2.7% 2.6% 2.6%
D. Consolidated
effective tax rate 39.8% 38.0% 39.4% 38.9%
(1) These are non-GAAP financial measures. For a reconciliation of these
non-GAAP financial measures to their most comparable measure
calculated and presented in accordance with GAAP, see attached
reconciliation schedules.
(2) On a non-GAAP basis patient care costs per treatment excluding gains
from insurance settlements of $1.76 for the third quarter of 2007
would have been $233.43.
DAVITA INC.
SUPPLEMENTAL FINANCIAL DATA -- continued
(unaudited)
(dollars in millions, except for per share and per treatment data)
Nine months
Three months ended ended
September 30, June 30, September 30, September 30,
2008 2008 2007 2008
Cash Flow
Operating cash
flow $146.2 $134.5 $95.8 $371.8
Operating cash
flow, last twelve
months $595.1 $544.6 $499.8
Free cash flow(1) $119.0 $114.4 $73.5 $306.6
Free cash flow, last
twelve months(1) $491.2 $445.7 $395.6
Capital expenditures:
Development and
relocations $51.6 $60.2 $48.5 $158.0
Routine
maintenance/IT
other $27.2 $20.2 $22.6 $65.9
Acquisition
expenditures $31.5 $60.9 $75.5 $101.2
Accounts Receivable
Net receivables $1,057 $1,047 $976
DSO 70 70 70
Debt/Capital Structure
Total debt(2) $3,704 $3,705 $3,701
Net debt, net of
cash(2) $3,316 $3,378 $3,309
Leverage ratio
(see Note 1) 2.98x 3.07x 3.10x
Overall effective
weighted average
interest rate
during the quarter 5.66% 5.75% 6.48%
Overall effective
weighted average
interest rate end
of the quarter 6.09% 5.68% 6.43%
Effective weighted
average interest
rate on the Senior
Secured Credit
Facilities end of
the quarter 5.39% 4.59% 6.00%
Economically fixed
interest rates as
a percentage of
our total debt 70% 69% 77%
Share repurchases $- $137.2 $- $169.7
Clinical (quarterly averages)
Dialysis adequacy
-% of patients
with Kt/V > 1.2 94% 95% 94%
Patients with
Hb>=10 <=13 87% 86% 80%
Patients with
arteriovenous
fistulas placed 61% 60% 57%
(1) These are non-GAAP financial measures. For a reconciliation of these
non-GAAP financial measures to their most comparable measure
calculated and presented in accordance with GAAP, see attached
reconciliation schedules.
(2) Excludes an unamortized balance of a debt premium associated with our
senior notes that is not actually outstanding debt principal.
DAVITA INC.
SUPPLEMENTAL FINANCIAL DATA -- continued
(unaudited)
(dollars in thousands)
Note 1: Calculation of the Leverage Ratio
Under the Company's current Senior Secured Credit Facilities (Credit Agreement), the leverage ratio is defined as all funded debt plus the face amount of all letters of credit issued, minus cash and cash equivalents, divided by "Consolidated EBITDA". The leverage ratio determines the interest rate margin payable by the Company for its term loan A and revolving line of credit under the Credit Agreement by establishing the margin over the base interest rate (LIBOR) that is applicable. The following leverage ratio was calculated using "Consolidated EBITDA" as defined in the Credit Agreement. The calculation below is based on the last twelve months of "Consolidated EBITDA", pro forma for the routine acquisitions that occurred during the period. The Company's management believes that the presentation of "Consolidated EBITDA" is useful to investors to enhance their understanding of the Company's leverage ratio under its Credit Agreement.
Rolling 12-months
ended September 30,
2008
Net income $361,512
Income taxes $228,034
Debt expense $231,542
Depreciation and amortization $212,065
Minority interests and equity income, net $45,896
Other $10,683
Stock-based compensation expense $38,865
"Consolidated EBITDA" $1,128,597
September 30, 2008
Total debt, excluding debt premium of
$3.9 million $3,703,599
Letters of credit issued 47,001
3,750,600
Less: cash and cash equivalents (387,947)
Consolidated net debt $3,362,653
Last twelve months "Consolidated EBITDA" $1,128,597
Leverage ratio 2.98x
In accordance with the Company's Credit Agreement, the Company's leverage ratio cannot exceed 4.75 to 1.0 as of September 30, 2008. At that date, the Company's leverage ratio did not exceed 4.75 to 1.0.
RECONCILIATIONS FOR NON-GAAP MEASURES
(unaudited)
(dollars in thousands)
1. Net income excluding gains from insurance settlements, gains on the sale of investment securities and the valuation gain on the alliance and product supply agreement (the Product Supply Agreement):
We believe that net income excluding gains from insurance settlements, gains on the sale of investment securities and the valuation gain on the Product Supply Agreement enhances a user's understanding of our normal net income for these periods by providing a measure that is more meaningful because it excludes insurance settlement gains related to insurance proceeds from Hurricane Katrina and from a fire that destroyed one of our centers, as well as non-recurring gains on the sale of investment securities and a non- recurring non-cash item that resulted from the termination of our purchase obligation for dialysis machines from Gambro Renal Products Inc. under the Product Supply Agreement, and accordingly is more comparable to current and prior periods and indicative of consistent net income. This measure is not a measure of financial performance under United States generally accepted accounting principles and should not be considered as an alternative to net income.
Three months ended Nine months ended
September 30, June 30, September 30, September 30, September 30,
2008 2008 2007 2008 2007
Net income $93,910 $94,951 $94,455 $275,795 $296,061
Less:
Gains on
insurance
settlements - - (6,779) - (6,779)
Gains on
the sale
of investment
securities - - (1,634) - (5,868)
Valuation
gain - - - - (55,275)
Add:
Related
income tax - - 3,273 - 26,422
$93,910 $94,951 $89,315 $275,795 $254,561
2. Operating income excluding pre-tax gains from insurance settlements and the pre-tax valuation gain on the Product Supply Agreement:
We believe that operating income excluding gains from insurance settlements and the valuation gain on the Product Supply Agreement enhances a user's understanding of our normal operating income for these periods by providing a measure that is more meaningful because it excludes insurance settlements gains related to insurance proceeds from Hurricane Katrina and from a fire that destroyed one of our centers and a non-recurring non-cash item that resulted from the termination of our purchase obligation for dialysis machines from Gambro Renal Products Inc. under the Product Supply Agreement and accordingly is more comparable to current and prior periods and indicative of consistent operating income items. This measure is not a measure of financial performance under United States generally accepted accounting principles and should not be considered as an alternative to operating income.
Three months ended Nine months ended
September 30, June 30, September 30, September 30, September 30,
2008 2008 2007 2008 2007
Operating
income $207,884 $205,554 $212,412 $610,165 $666,946
Less:
Gains on
insurance
settlements - - (6,779) - (6,779)
Valuation
gain - - - - (55,275)
$207,884 $205,554 $205,633 $610,165 $604,892
RECONCILIATIONS FOR NON-GAAP MEASURES
(unaudited)
(dollars in thousands)
3. Free cash flow
Free cash flow represents net cash provided by operating activities less capital expenditures for routine maintenance and information technology. We believe free cash flow is a useful adjunct to cash flow from operating activities and other measurements under United States generally accepted accounting principles, since free cash flow is a meaningful measure of our ability to fund acquisition and development activities and meet our debt service requirements. Free cash flow is not a measure of financial performance under United States generally accepted accounting principles and should not be considered as an alternative to cash flows from operating, investing or financing activities, as an indicator of cash flows or as a measure of liquidity.
Three months ended Nine months ended
September 30, June 30, September 30, September 30,
2008 2008 2007 2008
Cash provided
by operating
activities $146,227 $134,510 $95,778 $371,761
Less: Expenditures
for routine
maintenance and
information
technology (27,217) (20,153) (22,229) (65,197)
Free cash flow $119,010 $114,357 $73,549 $306,564
Rolling 12-Month Period
September 30, June 30, September 30,
2008 2008 2007
Cash provided by operating
activities $595,087 $544,638 $499,818
Less: Expenditures for routine
maintenance and information
technology (103,885) (98,897) (104,189)
Free cash flow $491,202 $445,741 $395,629
First Call Analyst:
FCMN Contact: LeAnne.Zumwalt@davita.com
AP Archive: http://photoarchive.ap.org/
PRN Photo Desk,
SOURCE: DaVita Inc.
CONTACT: LeAnne Zumwalt, Investor Relations of DaVita Inc.,
+1-650-696-8910
Web site: http://www.davita.com/
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